Student loans are a huge burden on today's college graduates. LearnVest shares the plans of three individuals still working to be debt free.A college graduate without student loan debt is akin to reading a kind quote about Kim Kardashian in a tabloid—it’s rare.
In the past eight years, student loan debt has nearly tripled to a whopping $1.1 trillion, and in the past 10 years, the percentage of 25-year-olds with such debt has risen from 25% to 43%.
It’s gotten so bad, in fact, that New York Fed economists warned last month that the burden of student debt could stilt consumer spending by twentysomethings, as well as further hamper the recovery of the housing market and economy.
To get a better idea of what massive student loan debt (we’re talking over $100,000 massive) looks like, three people in different professions have given us a glimpse at their situations—specifically, how the debt is impacting their lives and how they plan to pay the money back. We also consulted LearnVest Planning Services CFP® Katie Brewer to see just how their repayment plans stack up.
Read on for more.
Dr. Amy Vlachakis, 31, Dentist
How Much I Borrowed: $150,000
What I Still Owe: $91,000
Although $150,000 is a lot of money to borrow, I didn’t really stress about it when I took out the government loans. In dental school, you don’t have time for a job, and borrowing money—unless you’re independently wealthy—is the way to afford it.
For four and a half years after I graduated, I worked as a dentist, making about $150,000 to $200,000 a year—10% of which I used to pay down my student loans each month. Then I decided to open my own practice in 2012, so I had to put my loans on deferment because I knew that I wouldn’t have the extra money to cover my school loans, along with the ones that I had to take out for over $400,000 to start the business.
Right now, I’m only paying the interest that’s accruing each month on my student loans (I have two different ones, with interest rates of 2.3% and 4.3%). Getting them both off the books is ideal, but I don’t stress about it—I know that I’ll be able to pay more as my business grows, hopefully within the next year.
I know several other dentists who have done the same thing—and one of them didn’t pay anything but interest for about two years. I myself feel very lucky to have been able to open my own practice. And the fact that I was able to defer my student loans is an amazing advantage that has helped to minimize my stress levels when it comes to the bills relating to my business. Of course, it would be nice not to have so much debt, but it hasn’t held me back from pursuing my dreams.
What Katie Says: It’s impressive that Amy has only been out of school for six years, and she’s already paid off about 40% of her student loans. Waiting a few years to start her own practice was probably a good call because she was able to make some serious headway paying them back. The one thing that I would recommend, since she’s now deferred her loans, is to set a deadline or a trigger for when she’ll resume paying—perhaps when her practice becomes profitable.
Shane Fischer, 36, Attorney
How Much I Borrowed: $100,000
What I Still Owe: $45,000
When I was 21, I had no real concept of money. I’d lived off my parents as a college student, and anything that I made from part-time jobs was “fun money.” So the amount of student loan debt that I was accruing seemed very abstract. Not to mention that I really bought into the idea that large student loans are an “investment” in law school, and they’ll pay off in the form of money! money! money! upon graduation.
Unfortunately, that wasn’t the case for me. I went to a private “regional” law school (that’s a euphemism for a bottom-tier school, according to the rankings) that nobody outside of Florida has heard of because it was the only school that accepted me.
I did find a job after graduation, working in criminal defense and personal injury, but the only way that I could afford to live was if I consolidated my loans from the standard, 10-year repayment plan to a 30-year repayment. This reduced the amount that I owed each month, but it also meant that I’d be paying thousands of dollars more in interest over the life of the loan.
So every month, $308.19 comes out of my checking account, which is a lot considering that I make only about $55,000 a year. My salary is about 40% less than what most attorneys with my years of experience typically make because I don’t work for a private firm—I believe quality of life is as important as quality of work.
The culture of the legal profession is to never talk about your student loan debt because most people who’ve paid it off are resented by contemporaries who haven’t. But I am comforted in the knowledge that if I run into tough times, I can always defer the loans—while accumulating interest, of course. And since the interest rate is low at 2.875%, I’m not scrambling to pay it off.
But since 6% of my salary goes toward paying off my loans, there’s little money left over for other things that I want to do—like paying down my mortgage, investing for retirement and going on vacation.
What Katie Says: Shane is correct when he says that his interest rate is great—under 3% is fantastic—but I would caution him not to get too comfortable with those loans. He mentioned that he’s also thinking about paying down his mortgage faster, and saving for retirement and travel, which is smart, but I’d recommend that he keep the 50/20/30 rule in mind. At least 20% of his income should go toward financial priorities, which includes savings and debt repayment. Another point worth mentioning is that, while Shane works for a private company, lawyers who work for the state or local government should look into whether they qualify for the public loan forgiveness program, which could substantially reduce student debt.
Victoria Karan, 39, Business Affairs Executive
How Much I Borrowed: $198,000
What I Still Owe: $174,000
I got my first department store credit card at the age of 12. By 19, I had more than nine credit cards—some with $20,000 limits. So by the time I got around to finishing my undergrad degree before going on to law school, I didn’t stress about borrowing the money. I was used to being in debt, and I felt like it was good debt, since it would give me the ability to make my dreams come true.
I also figured that law school would only increase my earning potential, and when I got out of school, I’d be making enough money to pay off the loans. I had no idea just how much the debt would truly affect my life. I postponed having children, and I’m just now pregnant with my first child at 39.
I’m also pretty sure that I put off being in a serious romantic relationships for quite a while due to my student loan and credit card debt. I felt like damaged goods, so I decided that anyone who even considered dating me deserved to know up front that I came to the table with over $200K of debt.
And then there’s home ownership. There is no way that I’m going to take on another massive debt of over six figures when I already have one! I’d love to own a house, but I’m currently not seeing a way to make that happen with a $93,000 salary—and 30% of it goes toward student loans!
My current plan to pay back my loans is to keep making those monthly payments until I’m in my sixties. Seriously. I went to law school in my late twenties, so the loans didn’t kick in until my early thirties—and I’m on a 30-year repayment plan. I currently pay the minimum monthly required payment on all of them. If I come into any money, I’d love to throw it at the loans. However, as of now, with the cost of living, there isn’t any extra money left over at the end of the month.
But I honestly wouldn’t change a thing. I’m proud of my law degree, and the work I am doing in entertainment law. I am a better version of myself, thanks to my education. But I do feel like I was part of an epidemic: The financial stress of debt has devastated many of my peers. They feel hopeless and overwhelmed by their debt, and some have even lost their houses and cars. I feel that I’m a survivor—the debt won’t win.
What Katie Says: Victoria has put a lot on hold because of her student loans—I see this often with my Gen X and Gen Y clients. One thing that Victoria might try to use is a student loan calculator. In doing so, she may be pleasantly surprised to see that if she pays even an extra $50 toward her loans each month, it could shave months or even years off the time to repay, as well as reduce the amount of interest she pays. She’ll just want to remember to include a note with any payments that the money is to be applied directly to the principal, not the interest. Otherwise, it will be treated as though she paid the next payment(s) early. Additionally, when she reduces the principal, she’ll reduce the amount of interest she’s racking up at the same time.
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